ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of Related Party Transactions and Reported Income Ratio Differences on Tax Avoidance

  • Hyung-Bai Lee Department of Accounting, Graduate School, Soongsil University

Asian Tax Journal Vol. 17 No. 1 (2016), pp. 125-160

Abstract

The purpose of this study is to analyze the effect of related party transactions and reported income ratio differences on tax avoidance after tax audit guidance disclosure. NTS in March 2006 was published the investigation had been closed on the outside front open to the regulatory paperwork. In addition, NTS in the selection of the target corporation subject to tax audits, and to determine how to select ‘Compliance Analysis Function (CAF)’ was introduced to the use of, the taxpayer in terms of tax companies are naturally principles and procedures, and selection of survey method (hereinafter referred to as “tax audit selection criteria”) shall in good faith at the core of operating system for the analysis have been great interest in this system, as well as a selection of companies surveyed in important variable in determining as to whether the ‘same industry reported income ratio’ can be considered. If the last year reported income ratio of companies were over the last year same industry reported income ratio, then this year companies are likely to use a variety of means for tax avoidance, on the other hand, does not lower the tax audit tax avoidance if the target is not selected a means to reduce tax evasion (income or you want to increase profits means) are likely to use. Which we believe is the best means of its related companies that will be deal with such related parties. Samples are companies listed on Korean Stock Exchange Market which are from 2006 to 2012. First, transactions between related parties are finally over corporate tax avoidance that is actively occurring while this study was confirmed by the effective tax rate as a direct measure of tax avoidance transaction is a related party to analyze the impact of tax avoidance. Second, this study also predicted that the difference of the last year reported income ratio of companies between the last year reported income ratio of the same industry is separated by large companies, small companies and medium companies, and large companies have large tax avoidance, medium companies have or have no tax avoidance and small companies have no tax avoidance. But results were somewhat different to estimates of tax avoidance and the type of the difference of reported income ratio. Third, the difference of high reported income ratio is interest in tax avoidance will not only be higher, there is a large difference of reported income ratio group than in the group otherwise use various means for tax avoidance, and that the most likely means of appropriate will be related party transactions. The result that it was confirmed if the last year operating margin of companies is higher than the last year operating margin of the same industry in estimates of Desai and Dharmapala (2006) tax avoidance measured the dependent variable, related party transactions was able to increase the tax avoidance. There are following contributions in this research that although the impact on related party transactions tax avoidance, Using the difference of reported income ratio in the cause variable, companies of the difference of high reported income ratio than otherwise is increased with the degree of tax avoidance through related party transactions.

Keywords

  • related party transactions
  • reported income ratio
  • tax avoidance

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